Bell Industries, Inc. vs. Department of Revenue - Florida Sales Tax ...

STATE OF FLORIDADIVISION OF ADMINISTRATIVE HEARINGSBELL INDUSTRIES, INC.,Petitioner,vs.DEPARTMENT OF REVENUE,Respondent.))))))))))Case No. 12-2013RECOMMENDED ORDERA formal hearing was conducted in this case on July 23,2012, in Tallahassee, Florida, before Lawrence P. Stevenson, aduly-designated Administrative Law Judge with the Division ofAdministrative Hearings.APPEARANCESFor Petitioner: Mark A. Begle, Qualified RepresentativeBell Techlogix, Inc. 1/8888 Keystone Crossing, Suite 1700Indianapolis, Indiana 46240For Respondent: John Mika, EsquireOffice of the Attorney GeneralThe Capitol, Plaza Level 01Revenue Litigation SectionTallahassee, Florida 32399-1050STATEMENT OF THE ISSUEThe issue is whether the Department of Revenue (the"Department") may levy on deposits of Bell Industries, Inc.

Department timely filed a Proposed Recommended Order onAugust 13, 2012. Bell Industries did not file a proposedrecommended order.Unless otherwise noted, all statutory references are toFlorida Statutes (2011).FINDINGS OF FACT1. The Department is the agency of the state of Floridacharged with the duty to enforce the collection of taxes imposedpursuant to chapter 212, Florida Statutes, including theauthority to levy against the credits or personal property ofdelinquent taxpayers. § 213.67, Fla. Stat.2. Bell Industries is a holding company for the operationof several operating entities. In early 2007, Bell Industriespurchased Skytel, a telecommunications services company, fromVerizon. The purchased entity was subject the communicationsservices tax set forth in chapter 202, Florida Statutes.3. Mark A. Begle, an officer of Bell Industries, testifiedthat the tax compliance issues undertaken by his company in thispurchase were "quite painful and took a lot of time." Mr. Beglestated that the complexity of filings under the Floridacommunications services tax necessitated the hiring of TaxPartners, an outside specialty company based in Atlanta, tofulfill the Skytel tax obligations. It took Tax Partners3

several months to get the systems in place to properly file theFlorida tax forms.4. Mr. Begle acknowledged that his company's initialFlorida tax returns were late filed.5. After the Department received and processed the initialreturns, it sent initial notices to Bell Industries advising thecompany of the late filing penalty and interest amounts due forthe delinquent months. The Department sent the initial noticeson August 23, 2007.6. Eventually, the Department sent out a Notice of FinalAssessment to Bell Industries for each of the two tax periodsfor which the company had filed delinquent returns. The Noticeof Final Assessment for the reporting periods of February 2007through May 2007, was mailed on September 25, 2007. The Noticeof Final Assessment for the reporting period of May 2008, wasmailed on February 6, 2009.7. The Department's Notice of Final Assessment offers ataxpayer two routes for contesting an assessment. First, thetaxpayer may commence an informal protest process by submittinga letter requesting review to the Department within 20 days ofthe date of the assessment. § 213.21, Fla. Stat. and Fla.Admin. Code R. 12-6.0033. Second, the taxpayer may choose tobypass the informal protest process and commence the formal4

appeals process provided by chapter 72, Florida Statutes, within60 days of the date of the assessment.8. Bell Industries did not timely invoke either method ofcontesting the assessments. Therefore, the assessments becamefinal.9. The Department filed a warrant, dated September 2,2008, in Leon County stating that Bell Industries was indebtedto the Department in the amount of $23,800.41. 2/Of this amount,$23,780.41 was listed as "penalty." The remaining $20.00 waslisted as a "filing fee." Thus, for all practical purposes, theclaimed amount of indebtedness is entirely a penalty.10. Department records indicated that the Department twicerejected Bell Industries' requests for compromise or waiver ofthe assessments, on September 14, 2007, and December 19, 2008.11. The Department issued a Notice of Freeze, datedMarch 5, 2012, to Wells Fargo Bank, a financial institution inPhiladelphia, Pennsylvania. The Notice of Freeze instructed thebank that Bell Industries had a delinquent liability for tax,penalty and interest owed to the Department pursuant to section213.67, and that the bank "may not transfer, dispose of, orreturn any credits, debts, or other personal propertyowned/controlled by, or owed to, this taxpayer which are in yourpossession or control or become under your possession or controlup to the amount of $23,800.41."5

12. On March 15, 2012, Wells Fargo Bank reported to theDepartment that it was holding $23,800.41 in Bell Industriesdeposits.13. On March 5, 2012, the Department issued a Notice ofIntent to Levy on credits or personal property belonging to BellIndustries.14. On March 21, 2012, the Department issued a Notice ofContested Intent to Levy, in acknowledgement that BellIndustries was contesting the Department's intended levy.15. At the hearing, Bell Industries essentially concededits liability for the amount owed. Mr. Begle, Bell Industries'representative, credibly testified that the company endeavors tobe timely and in full compliance as regards all of its taxobligations.16. Mr. Begle noted that his company sold Skytel in March2008, which led to the termination of the relationship with TaxPartners and the dismantling of the entire management structurerelated to Skytel. Mr. Begle blamed these activities for BellIndustries' slow response, because correspondence from theDepartment regarding these tax issues was being sent topersonnel no longer associated with Bell Industries. Mr. Beglerequested that these unusual circumstances be taken into accountand that the Department consider waiving or negotiating thepenalty at issue in this proceeding.6

17. At the hearing, the Department took the position thatsection 213.21 allows the Department to negotiate a compromiseof an assessment of tax, interest and penalty, but that once thetime for filing a challenge to the assessment passes, as setforth in Florida Administrative Code Rule 12-6.0033, theDepartment no longer has the authority to compromise a claim.Because Bell Industries failed to file a timely challenge, theDepartment could not accept less than the amount claimed in theNotice of Intent to Levy.CONCLUSIONS OF LAW18. The Division of Administrative Hearings hasjurisdiction of the subject matter of and the parties to thisproceeding. §§ 120.569, 120.57(1), and 213.67(7), Fla. Stat.19. The general rule is that the burden of proof, apartfrom a statutory directive, is on the party asserting theaffirmative of an issue before an administrative tribunal.Young v. Dep't of Cmty. Aff., 625 So. 2d 831, 833-834 (Fla.1993); Dep't of Transp. v. J.W.C. Co., Inc., 396 So. 2d 778, 788(Fla. 1st DCA 1981); Balino v. Dep't of HRS, 348 So. 2d 349, 350(Fla. 1st DCA 1977). In this case, the Department bears theburden of showing its entitlement to levy on the assets of BellIndustries by a preponderance of the evidence.20. Section 95.091(1)(b), Florida Statutes, provides thata tax lien for any tax enumerated in section 72.011 is7

enforceable for 20 years after the last date the tax may beassessed, after the tax becomes delinquent, or after the filingof a tax warrant, whichever is later. Chapter 202, FloridaStatutes, the communications services tax, is one of the taxesenumerated in section 72.011. Section 202.35(2) provides thatpenalties imposed by chapter 202 are payable to and collectibleby the Department in the same manner as if they were part of thetax collected under chapter 202.21. Section 213.67 provides for the administrativegarnishment of the assets of any taxpayer who owes delinquenttaxes, penalties and interest. Florida Administrative CodeRules 12-21.201 through 12-21.205 implement section 213.67 bysetting out the detailed procedure for administrativegarnishment of the assets of the delinquent taxpayer. The factsfound above establish that the Department complied with theterms of its implementing rules in providing notice to thetaxpayer of its intended actions.22. Florida Administrative Code Rule 12-21.202(5) defines"noncompliant taxpayer" to mean "any taxpayer against whom awarrant has been issued by the Department for nonpayment of anamount due pursuant to any revenue law enumerated in s. 213.05."Chapter 202 is enumerated in section 213.05. The facts foundabove establish that Bell Industries was a noncomplianttaxpayer.8

23. On March 5, 2012, the Department issued a Notice ofFreeze to Wells Fargo Bank in accordance with rule 12-21.203.24. Also on March 5, 2012, the Department issued a Noticeof Intent to Levy on credits or personal property belonging toBell Industries in accordance with rule 12-21.204.25. The Department has made a prima facie showing of itsentitlement to levy on the assets of Bell Industries.26. Bell Industries did not contest the Department'sentitlement to the levy, but sought to negotiate a compromise ofthe amount of the penalty.27. Section 213.21 allows for the compromise of anassessed penalty during informal conferences. Rule 12-13.007provides grounds for reasonable cause for compromise ofpenalties. 3/ However, the Department contends that rule 12-6.0033(1) prohibits the taxpayer from taking advantage of thisprovision for failure to make a timely challenge of theassessment.28. Section 213.21(2) & (3)(a) provide:(2)(a) The executive director of thedepartment or his or her designee isauthorized to enter into closing agreementswith any taxpayer settling or compromisingthe taxpayer’s liability for any tax,interest, or penalty assessed under any ofthe chapters specified in s. 72.011(1).Such agreements shall be in writing when theamount of tax, penalty, or interestcompromised exceeds $30,000 or for lesseramounts when the department deems it9

appropriate or when requested by thetaxpayer. When a written closing agreementhas been approved by the department andsigned by the executive director or his orher designee and the taxpayer, it shall befinal and conclusive; and, except upon ashowing of fraud or misrepresentation ofmaterial fact or except as to adjustmentspursuant to ss.198.16 and 220.23, noadditional assessment may be made by thedepartment against the taxpayer for the tax,interest, or penalty specified in theclosing agreement for the time periodspecified in the closing agreement, and thetaxpayer shall not be entitled to instituteany judicial or administrative proceeding torecover any tax, interest, or penalty paidpursuant to the closing agreement. Thedepartment is authorized to delegate to theexecutive director the authority to approveany such closing agreement resulting in atax reduction of $250,000 or less.(b) Notwithstanding the provisions ofparagraph (a), for the purpose offacilitating the settlement and distributionof an estate held by a personalrepresentative, the executive director ofthe department may, on behalf of the state,agree upon the amount of taxes at any timedue or to become due from such personalrepresentative under the provisions ofchapter 198; and payment in accordance withsuch agreement shall be full satisfaction ofthe taxes to which the agreement relates.(c) Notwithstanding paragraph (a), for thepurpose of compromising the liability of anytaxpayer for tax or interest on the groundsof doubt as to liability based on thetaxpayer's reasonable reliance on a writtendetermination issued by the department asdescribed in paragraph (3)(b), thedepartment may compromise the amount of suchtax or interest liability resulting fromsuch reasonable reliance.10

(3)(a) A taxpayer's liability for any taxor interest specified in s. 72.011(1) may becompromised by the department upon thegrounds of doubt as to liability for orcollectability of such tax or interest. Ataxpayer's liability for interest under anyof the chapters specified in s. 72.011(1)shall be settled or compromised in whole orin part whenever or to the extent that thedepartment determines that the delay in thedetermination of the amount due isattributable to the action or inaction ofthe department. A taxpayer's liability forpenalties under any of the chaptersspecified in s. 72.011(1) may be settled orcompromised if it is determined by thedepartment that the noncompliance is due toreasonable cause and not to willfulnegligence, willful neglect, or fraud. Thefacts and circumstances are subject to denovo review to determine the existence ofreasonable cause in any administrativeproceeding or judicial action challenging anassessment of penalty under any of thechapters specified in s. 72.011(1). Ataxpayer who establishes reasonable relianceon the written advice issued by thedepartment to the taxpayer will be deemed tohave shown reasonable cause for thenoncompliance. In addition, a taxpayer’sliability for penalties under any of thechapters specified in s. 72.011(1) in excessof 25 percent of the tax shall be settled orcompromised if the department determinesthat the noncompliance is due to reasonablecause and not to willful negligence, willfulneglect, or fraud. The department shallmaintain records of all compromises, and therecords shall state the basis for thecompromise. The records of compromise underthis paragraph shall not be subject todisclosure pursuant to s. 119.07(1) andshall be considered confidential informationgoverned by the provisions of s. 213.053.(Emphasis added).11

29. Florida Administrative Code Chapter 12-13, titled"Compromise and Settlement," implements section 213.21. Therules in this chapter are to be "used by the Executive Directoror the Executive Director's designee... in the exercise of theauthority to settle and compromise liability for tax, interest,and penalty granted by section 213.21, F.S." Fla. Admin. CodeR. 12-13.001. Rule 12-13.003 sets forth the procedure forrequesting a compromise:(1) Subsections 213.21(2)(a) and (3), F.S.,authorize the Executive Director, or theExecutive Director's designee, to enter intoclosing agreements settling or compromisinga liability for tax, interest, or penaltyunder any of the chapters specified insection 72.011(1), F.S.(2)(a) No tax, interest, penalty, orservice fee shall be compromised or settledunless the taxpayer first submits a requestto compromise or settle tax, interest,penalty, or service fees. Such request mustbe in writing if:1. The amount requested to be compromisedis greater than $30,000; or2. The taxpayer asks to submit the requestin writing; or3. The complexity of the issue(s) involvedrequires that the taxpayer submit a writtenrequest that explains the issue(s).(b) The Department will accept a taxpayer'soral or electronic request for compromise orsettlement, if:1. The request for a compromise is for anamount less than or equal to $30,000; and12

2. The request is not subject to either ofthe criteria discussed in subparagraph 2. or3. of paragraph (a) of this subsection.(c) The taxpayer must establish in his orher request:1. In regard to tax or interest, doubt asto the taxpayer’s liability for tax orinterest, or actual lack of collectabilityof the tax or interest as demonstrated tothe satisfaction of the Department byaudited financial statements or othersuitable evidence acceptable to theDepartment. Grounds for finding doubt as toliability and doubt as to collectability,respectively, are set forth in furtherdetail in rules 12-13.005 and 12-13.006,F.A.C.2. In regard to penalty, that thenoncompliance was due to reasonable causeand not to willful negligence, willfulneglect, or fraud. The taxpayer shall berequired to set forth the facts andcircumstances which support the taxpayer’sbasis for compromise and which demonstratethe existence of reasonable cause forcompromise of the penalty or service fee andsuch other information as may be required bythe Department.3. In regard to the service fee, when afinancial institution error results in adraft, order, or check being returned to theDepartment, the taxpayer will be required tosubmit to the Department a written statementfrom the financial institution. The writtenstatement must give the detail of theerror(s) and explain why the financialinstitution was at fault. The statementmust be on the financial institution’sletterhead.4. Grounds for finding reasonable cause areset forth in further detail in Rule 12-13.007, F.A.C.13

30. Rule 12-6.0033 provides:(1)(a) A taxpayer may secure review of anassessment issued by the Departmentregarding tax returns, other requiredfilings, and billings by implementing theprovisions of this section. When a taxpayerhas pursued review under the provisions ofeither Rule 12-6.002 or 12-6.003, F.A.C., orboth, or has failed to comply with the timelimitations or has exhausted the reviewrights in those rules, the taxpayer shallnot have the right to pursue review underthis section. The assessment procedureunder this rule and review of suchassessments regarding tax returns, otherrequired filings, and departmental billingsshall not preclude an audit of taxpayerbooks and records, and shall not precludeaudit assessments or other assessments fortax deficiency.(b) To secure review of an assessmentregarding tax returns, other requiredfilings, and billings a taxpayer must file awritten protest postmarked or faxed within20 consecutive calendar days (150consecutive calendar days if the assessmentis addressed to a person outside the UnitedStates) from the date of issuance on theassessment.(c) Protests postmarked or faxed more than20 consecutive calendar days (150consecutive calendar days if the assessmentis addressed to a person outside the UnitedStates) after the date of issuance on theassessment will be deemed late filed, andthe assessment becomes final for purposes ofChapter 72, F.S., upon the expiration of 20consecutive calendar days (150 consecutivecalendar days if the assessment is addressedto a person outside the United States) afterthe date of issuance on the assessment,unless the taxpayer has timely secured awritten extension of time within which tofile a protest.14

(d)1. A taxpayer may request an extensionof time for filing a protest by mailing orfaxing a written request to the address orfax number designated on the assessment. Inorder for the taxpayer's request to beconsidered timely, the request must bepostmarked or faxed within 20 consecutivecalendar days (150 consecutive calendar daysif the assessment is addressed to a personoutside the United States) from the date ofissuance on the assessment. Each extensionof time will be for 15 consecutive calendardays. Within a 15 consecutive calendar dayextension period, the taxpayer may submit arequest in writing to the address or faxnumber designated on the assessment for anadditional 15 consecutive calendar dayextension within which to submit a writtenprotest.2. Failure to mail or fax the writtenprotest or failure to mail or fax a writtenrequest for an additional extension within a20 consecutive calendar day extension periodshall result in forfeiture of the taxpayer'srights to the proceedings provided by thisrule and the proposed assessment will becomea final assessment for purposes of Chapter72, F.S., at the expiration of the extendedfiling period.(2)(a) The protest shall be filed bymailing or faxing a written request to theaddress or fax number designated on theassessment, and shall include:1. The taxpayer's name, address, telephonenumber, federal taxpayer identifying number,and account number or audit number (whereappropriate);2. The tax type, the periods, and dollaramount of tax, interest, or penaltyprotested;3. A list of the unagreed items;15

4. A statement of facts and a descriptionof any additional information not previouslyavailable that supports the list of unagreeditems;5. A statement explaining the law or otherauthority on which the taxpayer’s positionis based;6. A copy of the assessment;7. A statement whether oral presentationand argument are requested.(b)1. If the protest does not contain thisrequired information, the taxpayer will benotified in writing by the office issuingthe assessment that the required informationmust be submitted within 15 consecutivecalendar days. Within this 15 consecutivecalendar day period, the taxpayer may submita request in writing to the office issuingthe assessment for an additional 15consecutive calendar days within which tosubmit this required information. Within a15 consecutive calendar day extensionperiod, the taxpayer may submit a request inwriting to the office issuing the assessmentfor an additional 15 consecutive calendarday extension within which to submit thisrequired information.2. Failure to submit this information or torequest an additional 15 consecutivecalendar day extension within either theoriginal 15 consecutive calendar day periodor an additional 15 consecutive calendar dayextension period shall result in issuance ofa written dismissal of the protest andforfeiture of the taxpayer's right to theproceedings provided by this rule.3. If the taxpayer either fails to submitthe required information or fails to requestan extension of time within which to submitthe required information, the assessment16

shall become a final assessment for purposesof Chapter 72, F.S., on the later of:a. The date a 15-consecutive calendar dayperiod expires pursuant to this rule; orb. The expiration of 20 consecutivecalendar days after the date of issuance onthe assessment.(3)(a)1. Upon receipt of a complete, timelyfiled written protest, the office thatissued the assessment will review theprotest and initiate an attempt to resolvethe issues. The office that issued theassessment may require the officeoriginating the assessment to provide awritten explanation, report, or narrativesetting forth the basis for the assessment.A copy of any explanation, report, ornarrative provided by the originating officepursuant to this sub-paragraph shall begiven to the taxpayer, if such document isdisclosable pursuant to applicable law.2. If a resolution is not achieved, theprotest will be forwarded to TechnicalAssistance and Dispute Resolution.Technical Assistance and Dispute Resolutionwill review the protest and may require theoffice originating the assessment to providea written explanation, report, or narrativesetting forth the basis for the assessment.A copy of any explanation, report, ornarrative provided by the originating officepursuant to this sub-paragraph shall begiven to the taxpayer, if such document isdisclosable pursuant to applicable law. Ifrequested by the taxpayer, an opportunityfor submission of additional information andan oral conference will be provided.Conferences are conducted informally inTallahassee, Florida, and no transcript ofthe proceedings will be made by theDepartment.17

(b) If a protest is timely filed and thetaxpayer and the Department are unable toresolve the disputed issues, a Notice ofReconsideration (NOR) shall be issued. Theassessment will become a final assessmentfor purposes of Chapter 72, F.S., as of thedate of issuance on the NOR.(4) If at any time jeopardy conditionsexist, the Department may initiateenforcement action under the Department'sjeopardy procedures to enforce anassessment.(5) Procedures outlined in this sectionshall be for investigative purposes asspecified in Section 120.57(5), F.S.(Emphasis added).31. Rule 12-6.0033 is titled "Protest of AssessmentsIssued by the Department Regarding Tax Returns, Other RequiredFilings, and Billings." While it is replete with statements oflimitation such as the underscored provision above, the ruleappears to be self-contained. Failure to timely file a protestconstitutes a forfeiture of the right to "pursue review underthis section." The rule does not appear to reach beyond chapter12-6 to limit the authority of the Department's ExecutiveDirector to entertain an offer of compromise pursuant to section213.21(2)&(3) and chapter 12-13. It makes conceptual sense thatthe Executive Director's discretionary ability to compromise apenalty in accordance with the criteria set forth in rule 12-13.007 would stand apart from the more workaday informal protestand appeal procedure outlined in chapter 12-6.18

32. It is concluded that the Department erred in failingto at least consider Bell Industries' request for compromise ofthe amount owed. Bell Industries should be given an opportunityto submit a request for settlement or compromise pursuant torules 12-13.003 and 12-13.007. This recommendation does notpurport to make any statement as to the merits of the BellIndustries request.33. In summary, the evidence in this case established thatthe Department is entitled to levy upon the assets of BellIndustries in the amount of $23,800.41. However, the evidencealso established that the Department should have considered BellIndustries' request to settle or compromise the penaltyassessment.RECOMMENDATIONBased on the foregoing Findings of Fact and Conclusions ofLaw, it isRECOMMENDED that the Department of Revenue enter a finalorder finding that the $23,800.41 in the Wells Fargo Bankbelonging to Bell Industries is subject to the Notice of Intentto Levy that the Department of Revenue issued on March 5, 2012,in accordance with section 213.67, Florida Statutes, but thatthe levy should not occur until Bell Industries is provided areasonable period of time in which to submit a request for19

settlement or compromise pursuant to Florida Administrative CodeRule 12-13.003.DONE AND ENTERED this 27th day of August, 2012, inTallahassee, Leon County, Florida.SLAWRENCE P. STEVENSONAdministrative Law JudgeDivision of Administrative HearingsThe DeSoto Building1230 Apalachee ParkwayTallahassee, Florida 32399-3060(850) 488-9675 SUNCOM 278-9675Fax Filing (850) 921-6847www.doah.state.fl.usFiled with the Clerk of theDivision of Administrative Hearingsthis 27th day of August, 2012.1/ENDNOTESA power of attorney was filed giving Mr. Begle authority torepresent Bell Industries, Inc., in this matter. At thehearing, Mr. Begle explained that Bell Industries, Inc., is aholding company for several entities, including Mr. Begle'semployer, Bell Techlogix, Inc. Mr. Begle is the controller forBell Techlogix, Inc., and is a corporate officer of BellIndustries, Inc., which has no controller or chief financialofficer of its own. The Department of Revenue had no objectionto Mr. Begle's acting as the qualified representative for BellIndustries, Inc.2/Based on its date, the warrant could only have sought torecover the amount owed for the February through May 2007 taxperiod. However, the amount stated in this warrant is the sameamount listed in the Department's March 5, 2012, Notice ofIntent to Levy that is the subject of this hearing. Documentspresented at the hearing show that the Department issued aNotice of Freeze to Wells Fargo Bank on October 13, 2011, in theamount of $26,178.45. Nonetheless, in this proceeding the20

Department will be limited to the amount claimed in the Noticeof Intent to Levy.3/Rule 12-13.007 provides:(1)(a) The Executive Director or theExecutive Director's designee, as enumeratedin Rule 12-13.004, F.A.C., will make adetermination of whether the taxpayer'snoncompliance was due to reasonable causeand not to willful negligence, willfulneglect, or fraud based on the facts andcircumstances of the specific case. Thestandard used in this determination shall bewhether the taxpayer exercised ordinary careand prudence and was nevertheless unable tocomply.(b) The exercise of ordinary care andprudence may be demonstrated by facts andcircumstances as stated in writing by thetaxpayer. Additionally, in those cases whena Department employee has information orknowledge supporting the taxpayer'sassertion of ordinary care and prudence, afinding of reasonable cause may be basedupon such additional information orknowledge, provided the finding ofreasonable cause is documented to reflectsuch information or knowledge.(c) When evaluating the facts andcircumstances relevant to penalties assessedas a result of an audit, the Departmentshall consider information provided by thetaxpayer in relation to the following:1. Whether the taxpayer has been auditedpreviously, and, if so, whether thepenalties which are the subject of thecompromise request result from taxpayeractions that resulted in a specific issuerelateddeficiency assessment during one ormore of the previous audits. It is not theintent of this subparagraph to apply toinfrequent occurrences of human error;21

2. The materiality of the tax deficiencyassessed in an audit when considered withinthe context of taxes correctly reported andtimely remitted by the taxpayer for the sametax during the same audit period;3. Whether the taxpayer has initiatedcontrols or other actions that will promoteproper future reporting with respect tothose activities which contributed to theaudit deficiency and related penalties; and4. Whether the tax was collected and notremitted to the state by the taxpayer.(d) When evaluating the facts andcircumstances relevant to penalties imposedpursuant to a billing not resulting from anaudit, the Department shall consider:1. The timeliness of payments made by thetaxpayer during previous reporting periods;2. The materiality of the tax deficiency towhich the penalty relates within the contextof the amount of the same taxes correctlyreported and remitted;3. Whether the taxpayer has initiatedcontrols or other actions related to theerrors that resulted in the billing andrelated penalties in order to promote bettercompliance in the future; and4. Whether the tax was collected and notremitted to the state by the taxpayer.(2) Reasonable cause is indicated by theexistence of facts and circumstances whichsupport the exercise of ordinary care andprudence on the part of the taxpayer incomplying with the revenue laws of thisstate. Depending upon the circumstances,reasonable cause may exist even though thecircumstances indicate that slightnegligence, inadvertence, mistake, or errorresulted in noncompliance. Consideration22

will be given to the complexity of the factsand the difficulty of the tax law and theissue involved, and also to the existence orlack of clear rules or instructions coveringthe taxpayer’s situation.(3) Ignorance of the law or an erroneousbelief as to the need to comply with arevenue law constitutes reasonable causewhen there are facts and circumstances,which indicate ordinary care, and prudencewas exercised by the taxpayer.(a) For example, ignorance of the law or anerroneous belief held by the taxpayer is abasis for reasonable cause when the taxpayerhas a limited knowledge of business, alimited education, limited experience inFlorida tax matters, or advice received froma competent advisor was relied upon incomplying with the provisions of a revenuelaw.(b) A good faith belief held by a taxpayerwith limited business knowledge, limitededucation, or limited experience withFlorida tax matters is a basis forreasonable cause when there is reasonabledoubt as to whether compliance is requiredin view of conflicting rulings, decisions,or ambiguities in the law.(4) Reliance upon the erroneous advice ofan advisor is a basis for reasonable causewhen the taxpayer relied in good faith uponwritten advice of an advisor who wascompetent in Florida tax matters and theadvisor acted with full knowledge of all ofthe essential facts. Informal advice,advice based upon insufficient facts, advicereceived in cases where facts weredeliberately concealed, or obviouslyerroneous advice are not grounds forreasonable cause. To establish reasonablecause based upon reliance on the advice of acompetent advisor, the taxpayer shalldemonstrate:23

(a) That the taxpayer sought timely adviceof a person who was competent in Florida taxmatters;(b) That the taxpayer provided the advisorwith all of the necessary information andwithheld nothing; and(c) That the taxpayer acted in good faithupon written advice actually received fromthe advisor.(5) Reasonable reliance upon the expressterms of written advice given by theDepartment establishes reasonable cause whenthe taxpayer shows that the advice wastimely sought from a departmental employeeand that all material facts were disclosed,and that the express terms of the advicewere actually followed. "Written advice"for purposes of establishing reasonablecause as a basis for compromise of penaltiesincludes a writing issued to the sametaxpayer by the Department in response tothat taxpayer's request for advice. Thedetermination whether the taxpayer hasreasonably relied on such written advicewill be made in accordance with the criteriafor determining if a taxpayer has reasonablyrelied on a written determination forpurposes of compromise of tax and interestas set forth in subsection 12-13.005(2),F.A.C.(6) Reliance upon another person to complywith filing requirements, or to obtaininformation, or to properly prepare returnsor reports, is a basis for reasonable cause,depending upon the circumstances.Noncompliance due to nonperformance of aministerial-type function, inadvertentmisplacement of returns, reports, orinformation, or the failure of thetaxpayer's agent to properly prepare or filereturns or reports are each a basis forreasonable cause when the taxpayerestablishes that adequate procedures or24

steps for complying existed; that the personresponsible for performing the functionordinarily performed the task properly; or,that extenuating or unusual circumstancesprevented compliance.(7)(a) Death, illness, or incapacity of thetaxpayer is a basis for reasonable causewhen such circumstances directly preventedcompliance or adversely affected thetaxpayer’s ability to comply. Anunexplained or unsupported claim ofnoncompliance due to death, illness, orincapacity is not a basis for reasonablecause. It must be shown that the death,illness, or incapacity directly preventedcompliance, in spite of reasonable effortsto comply.(b) Death, illness, or incapacity of amember of the taxpayer’s immediate family,or of a person solely responsible formaintaining information necessary to comply,or of a person with sole authority toprepare required returns or reports is abasis for reasonable cause when thenoncompliance resulted directly from such acircumstance, in spite of reasonable effortsto comply.(8) Circumstances beyond a taxpayer'sreasonable control, such as acts of war,natural disaster, accidental destruction byfire or other casualty, or unavoidableabsence are a basis for reasonable causewhen the taxpayer demonstrates suchcircumstances directly prevented compliance,or adversely affected the taxpayer’s abilityto comply.(9) Reasonable cause shall be presumed toexist whenever a taxpayer voluntarily selfdisclosesliability for tax, interest, orpenalty by contacting the Department inwriting to disclose and pay tax and interestdue prior to any contact by the Departmentconcerning such liability. The presumption25

does not apply when the taxpayer isregistered with the Department or hasroutinely filed returns with the Departmentand the taxpayer's self-disclosure relatesto a delinquency or deficiency that isobvious and would routinely generate abilling if not otherwise self-disclosed.(10) Reasonable cause shall be presumed toexist whenever a taxpayer voluntarily andtimely participates in completion of formsprovided to the taxpayer by the Departmentas part of a self-audit or self-analysisprogram and promptly remits tax and interestdue pursuant to such self-audit or selfanalysis.(11) Reasonable cause shall be presumed toexist whenever a person who is not otherwiserequired to register as a dealer pursuant toChapter 212, F.S., purchases consumer goodsfor personal use pursuant to a mail ordersale and remits Florida use tax andinterest, either voluntarily or in promptresponse to a proposed assessment,assessment, or use tax billing issued by theDepartment.(12) Reasonable cause shall be presumed toexist whenever a person who is not otherwiserequired to register as a dealer pursuant toChapter 212, F.S., purchases tangiblepersonal property and imports same intoFlorida for business purposes and remitsFlorida use tax and interest, eithervoluntarily or in prompt response to aproposed assessment, assessment, or use taxbilling issued by the Department.(13) Reasonable cause shall be presumed toexist whenever the penalty at issue relatesto tax or interest which is compromised onthe basis of doubt as to liability or doubtas to collectability.(14) Subsections (3) through (13) areintended to provide examples and guidance to26

taxpayers and Department employees, butshould not be construed to limit penaltycompromises to only those circumstancesdescribed in such subsections. Penalty maybe compromised whenever the facts andcircumstances demonstrate reasonable cause.COPIES FURNISHED:Mark A. BegleBell Industries/Bell Techlogix, Inc.Suite 17008888 Keystone CrossingIndianapolis, Indiana 46240mbegle@belltechlogix.comJohn Mika, EsquireOffice of the Attorney GeneralThe Capitol, Plaza Level 01Tallahassee, Florida 32399-1050john.mika@myfloridalegal.comNancy Terrel, General CounselDepartment of RevenuePost Office Box 6668Tallahassee, Florida 32314-6668terreln@dor.state.fl.usMarshall Stranburg, Interim Executive DirectorDepartment of RevenuePost Office Box 6668Tallahassee, Florida 32314-6668stranbum@dor.state.fl.usNOTICE OF RIGHT TO SUBMIT EXCEPTIONSAll parties have the right to submit written exceptions within15 days from the date of this Recommended Order. Any exceptionsto this Recommended Order should be filed with the agency thatwill issue the Final Order in this case.27